Raghuram Rajan says 8 per cent growth few years away, 'open' to worsening times

India is likely to grow between 5.5 per cent and 6.5 per cent in the current fiscal year, said Raghuram Rajan, the Chief Economic Advisor in the Ministry of Finance.

In an interview with NDTV Profit, Dr Rajan said investment has slowed down and growth revival will be much slower than expected. An 8 to 9 per cent growth rate is a few years away, Dr Rajan said, reiterating the need to rebuild corporate investment. Watch the full interview here

An estimate on the growth situation is difficult, given the global economic uncertainty, the chief economic advisor said. However, he warned of the likelihood that the situation could worsen, saying a three to four year growth revival plan was required.

Dr Rajan's comments follow a spate of downgrades by international rating agencies and global investment banks, Standard & Poor's being the latest, of the economy's growth outlook.

India fully deserves an investment grade rating, he said, adding that credit rating agencies will look at the medium-term plan of the government and will hopefully take the right decision.

The government will adopt measures to improve investment confidence, Dr Rajan said. There are plans to cut transaction costs in capital markets. He recommended small investors in capital markets to diversify their portfolios.

Mr. Rajan was quoted by Reuters as saying that the U.S. Federal Reserve's latest round of monetary stimulus and monetary easing by the European Central Bank will benefit India in the short term.

The Fed began buying $40 billion a month in mortgage-backed securities this month and has pledged to continue the purchases until the labour market has improved substantially. The programme is called QE3 because it is the Fed's third try at quantitative easing, or buying bonds to stimulate the economy.

On the government's infrastructure push, he said a National Investment Board will be set up soon to help clear delayed infrastructure projects since the connectivity of roads, highways and airports is a priority.

Allaying worries about the Indian currency, he said there was no need for undue worries on the level of the rupee, and improved investor confidence will impact rupee valuations.

On the macroeconomic situation, he said crude oil prices were unlikely to soften too much and the oil subsidy burden would have to be passed on to the consumer.

The government raised the price of diesel about a fortnight ago to ease the crippling subsidy burden on state-owned oil marketing companies.

Revenue collections in India are uncertain, and the government is working on a few more fiscal steps, although any mid-year change in direct taxes are unlikely.

Dr Rajan took over as the Chief Economic Advisor in the Finance Ministry less than a month ago. In his stellar career, the IIT-IIM alumnus has served as the Economic Counselor and Director of Research at the International Monetary Fund. He has also taught at the Graduate School of Business at the University of Chicago.

With inputs from Reuters